RE: SPS Governance Proposal - Restructuring DAO LPs
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Create a new DEC:USDC v3 position with a range of 0 to 0.00101 on Pancake Swap
What happens when the price is above the high end of the range?
Does it mean that if DEC is above peg then this entire liquidity pool is unavailable for routing?
Won’t that result in larger slippage near “soft peg” if there is large buying demand, and this liquidity isn’t available? It also prevents the DAO from selling any DEC when demand pushes the price above the soft peg, so the buyer pays more and the DAO misses an opportunity (at which point all the PnL will be captured by arbitrage bots)
Maybe I’m not thinking of this correctly, but to me it seems like infinite liquidity would potentially serve better than range liquidity
It means that to get DEC over peg you'd have to buy everything in the position. If demand pushes the price of DEC beyond that point, then you'd need to be buying SPS to burn for DEC. You'd then have about $200k in buying power for the people burning SPS and selling it into the position.
I discussed this at length with several people familiar with defi over the last week or so and they all agreed this was the way to proceed.
There's also still the .00083-.00104 position as well. So realistically DEC would have to go 4% over peg to run out of DEC to buy, and then like I said if that happens people will be buying SPS and burning it for DEC to sell into these positions for the 1-4% gain.
Thanks for the reply and trying to explain.
It sounds like the swap math completely changes above the limit, I’m curious how the LP continues to price both tokens once it keeps selling DEC at soft peg and it can’t keep both assets in equilibrium balance anymore?
Say we have $100 in each asset at peg.
Dec increases and someone buys $25 in DEC - normally that would push the LP’ DEC price up to equilibrium but you are saying that doesn’t happen - instead the LP keeps $25 of DEC at peg and $125 of USDC. I’m just guessing either it keeps buying/selling both assets at the limit price, or maybe the pool shrinks automatically (withdrawing USDC proportionally)
How does the LP revert back from the 125/25 imbalance when Dec demand abates and people start selling back into the pool at soft peg?
https://debank.com/profile/0xdf5Fd6B21E0E7aC559B41Cf2597126B3714f432C
You can check the pool in question at the link. #1250953
What happens is it only has one token when it goes beyond that range. This actually happened with the other DEC:USDC pool when DEC fell below peg. We had a position with millions of DEC and no USDC. In short, it could only sell DEC, not buy.
We have a pull that can only buy DEC (for 0.00083) right now. It has no DEC to sell.
Having a pool from 0-0.00101 means that it has liquidity to buy or sell DEC all the way up to 1% over peg, then it can only buy DEC. You end up with 200k buy pressure which makes it harder to drop far from peg.
Good context and appreciate your time explaining. Looks like I have some more learning to do :)